Well we know that POMO is a scheme in which the Treasury issues debt, there's virtually no foreign interest in our debt anymore (read China) so the Primary Dealers have obviously worked out a deal with the Federal Reserve which will buy the debt bought by the PDs at an obscenely high mark-up and the Fed just prints money to do that. In return for an obscene amount of risk free money, the Primary Dealers such as Goldman Sachs, bid up the market to keep this infantile notion of a wealth effect going. Yes, the Fed thinks if the stock market is higher, people will be more comfortable spending money they don't have-if they even have a job. It' one of the most ridiculous notions ever, so much so that it is obviously a cover for the banks to make more money via their trading desks and an attempt to slow the pace of domestic equity fund outflows so 1000 mutual funds don't crash and burn along with hundreds of hedge funds.
Well it's been tracked fairly extensively and found that a high submitted to accepted ratio of each operation tends to keep the PDs from sending their free money into the market. Today after the conclusion of the POMO, we saw no positive divergences in the market as we have seen in prior days. Take a look
In fact we have no divergences except the recent negative. The horizontal line shows what the market did right at 11 a.m. you know why it went down? Because results of the operations are announced and the submitted to accepted ratio was high (5.8x), traders in the know, knew that the PD's wouldn't be throwing their free money at the market today. The median is about 4.1x what the dealers submit compared to what is accepted by the Fed. A ratio coming in below 4x you will most likely see the surge in stocks at 11 a.m. and probably green close. Even if this were not what was happening, enough traders are trading this formula to make it a self-fulfilling prophecy.
Just put that bit of knowledge in your trading tool box.
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